The payroll tax increase hurts low income workers

The Guardsman
The punditocracy and public opinion are unanimous: President Barack Obama “won” the fiscal cliff deal. The United States Congress, for the first time in almost 20 years, voted to raise taxes on the wealthy and avoided cuts to Social Security, Medicare and Medicaid.

President Obama and the Democratic Party may have won the politics—all tax increases, no spending cuts, with public opinion firmly behind them—but the real losers are not the Republicans now in disarray, with approval ratings at record lows.

The real losers of the fiscal cliff deal are the American people, the middle and lower classes who comprise the backbone of the economy.

The fiscal cliff deal extended and enacted a series of tax cuts—the Bush tax cuts for individuals making less than $400,000 and married couples making less than $450,000, respectively, a $5 million exemption for the estate tax that increases with inflation (a courtesy not extended to the minimum wage) and corporate tax cuts in the neighborhood of $75 billion that benefit such “hard-pressed” entities as NASCAR and Hollywood.

There was one glaring omission: the payroll tax cut.

The expiration of the temporary Social Security payroll tax reduction means working people will see their after-tax income go down unless they pay into an alternative program, such as a pension fund. Seventy-seven percent of households will see a tax increase, from 4.2 percent to 6.2 percent of wages, amounting to an average of $1,635 per household annually, according to the nonpartisan Tax Policy Center.

The 6.2 percent rate was reduced by two percent when Congress passed a tax cut through the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 to help the middle and lower class affected by a sluggish economic recovery.

President Obama signed the bill into law Dec. 17, 2010. Congress meant for the tax cut to last only through 2011, calling it a “holiday.”

With economic malaise still persistent at the advent of 2012, Congress passed a two month extension of the tax cut in December 2011, and another February 2012 extension until the end of last year despite significant Republican opposition. With 2013 approaching and the fiscal cliff upon us, neither side of the political aisle pushed for the tax cut extension as part of the fiscal cliff deal.

Republican opposition to a tax cut extension is unclear and variable. Democratic opposition is more clear and unified: a continual tax cut will lessen the revenue for Social Security, possibly undermining this vital program.

But this is a vapid excuse. The original bill called for any shortfall in the Social Security trust fund to be paid for out of general revenue.

The intention behind extending the tax cut was not simply the moral conviction of helping the struggling working class—there are measurable macroeconomic consequences. Because a tax increase on the middle and lower class will mean a decrease in overall consumer spending, the nonpartisan Congressional Budget Office predicts that the tax hike will cost the United States about 500,000 jobs.

Only Congress can pass tax related measures. Contact your representative (Nancy Pelosi represents San Francisco) and Senators Dianne Feinstein and Barbara Boxer and urge them to renew the payroll tax cut until national unemployment is sufficiently low (close to 5 percent).